What It Really Means: Being in the business of supply

A phrase often cited in discussions on supply chain strategy and performance is “being in the business of supply.” But what does that really mean?

A supply chain supports the business. If there are no products or services to provide, there is no need for a supply chain. As a result, supply chain design and operating strategy must align with the goals and priorities of the business. It’s typical to cast the role of supply chain as producing and shipping while managing cost and cash. This classic view, however, limits the supply chain’s ability to contribute to stronger overall business results. A supply chain designed and operated in line with business goals can amplify financial performance and outperform competitors where it matters most to the business. Achieving this level of integration requires a culture of being in the business of supply.

Why is the culture of being in the business of supply important? 

In a company that manufactures and distributes product, the supply chain organization, spanning manufacturing, procurement, logistics, planning, customer service, engineering, and quality, is often the function with the largest number of employees, sometimes by a significant percentage. The supply chain organization also typically controls a majority of a company’s spend and costs. For these reasons, it’s very important for the supply chain organization to be synchronized with overall business objectives and plans.

However, systems like annual work plans and measures cascading down through the organization can make it all too easy for large supply chain organizations to focus on siloed functional metrics. For example, imagine a scenario where manufacturing wants high OEE and planning wants low inventory. By being in the business of supply, the supply chain organization’s mindset can shift to ensure that functional metrics are in lockstep with the needs of the business.

Often, this alignment requires trade-offs. For example, inventory control is a typical supply chain metric. But if the business chooses to enter new markets, channels, or categories to spur growth, inventory levels may need to increase tied to anticipation builds and higher uncertainties. In this instance, inventory targets may need to be adjusted to align supply chain focus with the business need. 

Another example is when the business depends on frequent new product introductions to succeed. In that case, the supply chain design and operations capabilities must support rapid change, which may make cost a secondary objective. As a result, the emphasis shifts from a traditional cost-first focus to delivering rapid new product introductions in a cost-effective way.  

Another reason the mindset of being in the business of supply is important is that business strategies are rarely stagnant. Factors such as market and consumer changes, competition, and new inventions can drive changes in business strategy and plans. That being the case, the supply chain needs to stay closely connected to the overall business needs, adapting at the pace of the business. These changes can require new supply chain targets, new suppliers, new capabilities, and a new focus.

It’s often stated that for a business to be consistently successful, the supply chain needs a seat at the table alongside the multifunctional business leadership team. When in this seat, supply chain leaders can listen and process what they hear, translating those discussions into implications for supply chain functional work. The result may be adjustments to supply chain strategies or the creation of multiple strategies as needed to support the business. In practical terms, this effort can include determining which targets may need to be raised or relaxed, whether resource deployment is appropriate, whether new suppliers are needed, and whether capacity is likely to be sufficient. Supply chain leaders then bring this updated business understanding back to their organization to make adjustments as needed, ensuring the supply chain is set up to best support overall business objectives. 

Benefits of the culture of being in the business of supply: Clearly, having supply chain—often the largest function in a company—hardwired to what the business needs to succeed is a competitive advantage. Potential impacts include:

• increased sales revenue and profit
• reduced costs
• improved capability and speed for new product introduction
• increased ability to pivot in sync with business strategy shifts (new markets, channels, categories)
• internal development of both supply chain and business leaders from within the supply chain organization.

Watchouts: Unfortunately, there can be many intended or unintended barriers to developing a culture of being in the business of supply, including:

• Some supply chain leaders may be excellent at operating the supply chain and delivering functional results, but unable to speak and listen in the language of the business. Being “bilingual” (i.e., able to speak both the language of business and that of supply chain) is a critical skill needed to determine whether new targets or operational changes are required.  
• Other leaders are great at engaging with leaders and other contacts, but less effective at maintaining functional expertise. While the business may require increased focus in certain areas or new capabilities, the supply chain is still expected to operate well in its core functional domains (e.g., making, shipping, quality, cost). 
• There is a risk of paralysis if business needs and plans change frequently. The supply chain organization may be reluctant to embrace changes while waiting to see if they’ll stick.
• Misaligned KPIs are also common, especially if the supply chain organization is dispersed across other functions with differing goals. People ultimately respond to their incentives, even local ones. 

How to develop the mindset of being in the business of supply?

Supply chain leaders need to consistently talk about business needs and objectives with their organization. But more than talk, they need to show how those business needs connect directly to functional work and capabilities (and, where no clear connection exists, carefully evaluate whether that work is still required and why). People at all levels of the supply chain organization should be able to see a clear line of sight between overarching business needs and objectives and their individual work plans and measures. This dialogue needs to happen regularly and consistently to instill the culture of being in the business of supply.

About the authors

Andrew Byer is a former P&G Supply Chain Leader. Mike Dobslaw leads Ernst & Young LLP’s Supply Chain Planning practice. To learn more about how Ernst & Young LLP and P&G team to support supply chain transformations, please write [email protected].

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